nep-ent New Economics Papers
on Entrepreneurship
Issue of 2016‒02‒17
twelve papers chosen by
Marcus Dejardin
Université de Namur

  1. Who Works for Whom? Worker Sorting in a Model of Entrepreneurship with Heterogeneous Labor Markets By Dinlersoz, Emin; Hyatt, Henry R.; Janicki, Hubert P.
  2. Public health insurance and entry into self-employment By Fossen, Frank M.; König, Johannes
  3. Personality traits, subjective learning, and entrepreneurial decision making By Konon, Alexander
  4. Personality Traits and the Evaluation of Start-Up Subsidies By Caliendo, Marco; Künn, Steffen; Weißenberger, Martin
  5. Entry Regulations, Welfare and Determinants of Market Structure By Maican, Florin; Orth, Matilda
  6. A Wage-Efficiency Spatial Model for US Self-Employed Workers By Gimenez-Nadal, J. Ignacio; Molina, José Alberto; Velilla, Jorge
  7. Talent Allocation, Financial Intermediation and Growth: Evidence and Theory By Khabibulina, Liliya; Hefti, Andreas
  8. The Support Paradox in Community Enterprise Experiments in The Netherlands By Kleinhans, Reinout; van Ham, Maarten
  9. Advance-Purchase Financing of Projects with Few Buyers By Sahm, Marco
  10. Don't Stop Me Now: The Impact of Credit Market Segmentation on Firms' Financing Constraints By Bremus, Franziska Maria; Neugebauer, Katja
  11. Entry and Shakeout in Dynamic Oligopoly By Schmidt-Dengler, Philipp; Hünermund, Paul; Takahashi, Yuya
  12. Idiosyncratic Risk, Borrowing Constraints and Financial Integration - A Discussion of Ambiguous Results By Wulff, Alexander; Heinemann, Maik

  1. By: Dinlersoz, Emin (U.S. Census Bureau); Hyatt, Henry R. (U.S. Census Bureau); Janicki, Hubert P. (U.S. Census Bureau)
    Abstract: Young and small firms are typically matched with younger and nonemployed individuals, and they provide these workers with lower earnings compared to other firms. To explore the mechanisms behind these facts, a dynamic model of entrepreneurship is introduced, where individuals can choose not to work, become entrepreneurs, or work in one of the two sectors: corporate or entrepreneurial. The differences in production technology, financial constraints, and labor market frictions lead to sector-specific wages and worker sorting across the two sectors. Individuals with lower assets tend to accept lower-paying jobs in the entrepreneurial sector, an implication that finds support in the data. The effect on the entrepreneurial sector of changes in key parameters is also studied to explore some channels that may have contributed to the decline of entrepreneurship in the United States.
    Keywords: entrepreneurship, borrowing constraints, financial frictions, labor market frictions, worker sorting, decline in entrepreneurship
    JEL: L26 J21 J22 J23 J24 J30 E21 E23 E24
    Date: 2016–01
  2. By: Fossen, Frank M.; König, Johannes
    Abstract: We estimate the impact of a differential treatment of paid employees versus self-employed workers in a public health insurance system on the entry rate into entrepreneurship. In Germany, the public health insurance system is mandatory for most paid employees, but not for the self-employed, who usually buy private health insurance. Private health insurance contributions are relatively low for the young and healthy, and until 2013 also for males, but less attractive at the other ends of these dimensions and if membership in the public health insurance system allows other family members to be covered by contribution-free family insurance. Therefore, the health insurance system can create incentives or disincentives to starting up a business depending on the family's situation and health. We estimate a discrete time hazard rate model of entrepreneurial entry based on representative household panel data for Germany, which include personal health information, and we account for non-random sample selection. We estimate that an increase in the health insurance cost differential between self-employed workers and paid employees by 100 euro per month decreases the annual probability of entry into self-employment by 0.38 percentage points, i.e. about a third of the average annual entry rate. The results show that the phenomenon of entrepreneurship lock, which an emerging literature describes for the system of employer provided health insurance in the USA, can also occur in a public health insurance system. Therefore, entrepreneurial activity should be taken into account when discussing potential health care reforms, not only in the USA and in Germany.
    JEL: L26 I13 J20
    Date: 2015
  3. By: Konon, Alexander
    Abstract: We present a dynamic occupational choice model with a learning algorithm simultaneously capable to explain entrepreneurial entry, exit, and survival. According to our model, those individuals decide to become entrepreneurs who expect their productivity to be highest when managed by themselves. As we further assume that individuals have incomplete information about their own non-cognitive skills, which are relevant for entrepreneurial processes, entrepreneurial entry in our model is driven by overconfidence in the own skills---in line with earlier empirical findings. After entry, entrepreneurs receive noisy feedback from the market. Depending on a set of traits different from those driving the entry process into the market, entrepreneurs decide to either stay or leave the market. Our learning-based model generates survival rates decreasing at decreasing rates and captures findings on the earnings puzzle according to which median entrepreneurs do not earn more than median wage workers.
    JEL: D83 L26 L22
    Date: 2015
  4. By: Caliendo, Marco (University of Potsdam); Künn, Steffen (Maastricht University); Weißenberger, Martin (University of Potsdam)
    Abstract: Many countries support business start-ups to spur economic growth and reduce unemployment with different programmes. Evaluation studies of such programmes commonly rely on the conditional independence assumption (CIA), allowing a causal interpretation of the results only if all relevant variables affecting participation and success are accounted for. While the entrepreneurship literature has emphasised the important role of personality traits as predictors for start-up decisions and business success, these variables were neglected in evaluation studies so far due to data limitations. In this paper, we evaluate a new start-up subsidy for unemployed individuals in Germany using propensity score matching under the CIA. Having access to rich administrative-survey data allows us to incorporate usually unobserved personality measures in the evaluation and investigate their impact on the estimated effects. We find strong positive effects on labour market reintegration and earned income for the new programme. Most importantly, results including and excluding individuals' personalities do not differ significantly, implying that concerns about potential overestimation of programme effects in absence of personality measures might be less justified if the set of other control variables is rich enough.
    Keywords: start-up subsidies, evaluation, self-employment, personality, treatment effects
    JEL: C14 L26 H43 J68
    Date: 2016–01
  5. By: Maican, Florin (University of Gothenburg); Orth, Matilda (Research Institute of Industrial Economics (IFN))
    Abstract: We use a dynamic oligopoly model of entry and exit with store-type differentiation to evaluate how entry regulations affect profitability, market structure and welfare. Based on unique data for all retail food stores in Sweden, we estimate demand, recover variable profits, and estimate entry costs and fixed costs by store type. Counterfactual policy experiments show that welfare increases when competition is enhanced by lower entry costs. Protecting small stores by imposing licensing fees on large stores is not welfare enhancing. This study sheds light on the long-run implications of entry regulations for the welfare of differentiated product industries with endogenous entry and exit.
    Keywords: Imperfect competition; product differentiation; retail markets; entry; exit; sunk costs; welfare
    JEL: L11 L13 L81
    Date: 2015–12–28
  6. By: Gimenez-Nadal, J. Ignacio (University of Zaragoza); Molina, José Alberto (University of Zaragoza); Velilla, Jorge (University of Zaragoza)
    Abstract: In this paper, we study self-employment in a theoretical setting derived from wage-efficiency spatial models, where leisure and effort at work are complementary. We develop a spatial model of self-employment in which effort at work and commuting are negatively related, and thus the probability of self-employment decreases with "expected" commuting time. We use time-use data from the American Time Use Survey 2003-2014 to analyze the spatial distribution of self-employment across metropolitan areas in the US, focusing on the relationship between commuting time and the probability of self-employment. Our empirical results show that the probability of self-employment is negatively related to the "expected" commuting time, giving empirical support to our theoretical model. Furthermore, we propose a GIS model to show that commuting and self-employment rates are, in relation to unemployment rates, negatively related.
    Keywords: wage-efficiency, self-employment, commuting, leisure, American Time Use Survey
    JEL: J21 J22 R12 R41
    Date: 2016–01
  7. By: Khabibulina, Liliya; Hefti, Andreas
    Abstract: In this paper we study the relationship between intersectoral wage inequality and economic growth. In the empirical part of the paper, we find a negative correlation of relative wages in the financial sector with respect to manufacturing sector with subsequent economic growth in case of the U.S. states from 1977 to 2011. We show that the result is robust to different standard estimation techniques and control variables. A similar while somewhat less robust result applies to the case of relative sector sizes as measured by the labor force. In the theoretical part we aim at constructing a tractable general equilibrium model of financial intermediation, entrepreneurship and growth with an imperfect labor market, that helps to explain the observed empirical regularities.
    JEL: J24 J31 O41
    Date: 2015
  8. By: Kleinhans, Reinout (Delft University of Technology); van Ham, Maarten (Delft University of Technology)
    Abstract: In many European countries, community entrepreneurship is increasingly considered as a means to initiate small-scale urban regeneration. However, residents in deprived communities are often viewed to lack key entrepreneurial attributes and skills. This paper reports a unique experiment in the Netherlands with nascent community enterprises which received start-up support from a private foundation. This paper investigates how active citizens perceive the benefits and drawbacks of this support. In depth analysis of transcriptions of repeated semi-structured interviews (panel design with the same respondents) with representatives of established community enterprises and resident groups were analysed. While we find positive feedback on provided support, our research provides strong evidence for a 'support paradox': the support that was intended to overcome a number of entry barriers and difficulties on the road to community entrepreneurship has in fact significantly hampered progress among several of the studied CEs.
    Keywords: community enterprises, community entrepreneurship, active citizenship, support, urban regeneration, self-organisation, The Netherlands
    JEL: D71 L26 L31 R23
    Date: 2016–01
  9. By: Sahm, Marco
    Abstract: I investigate a simple model of advance-purchase contracts as a mode of financing costly projects. The analysis can easily be reinterpreted as a model of monopolistic provision of excludable public goods under private information. An entrepreneur has to meet some capital requirement in order to start production and sell the related good to a limited number of potential buyers who are privately informed about their willingness to pay. I find that advance-purchase arrangements allow to finance more costly projects than traditional funding sources. The entrepreneur is able to use advance-purchase surcharges as a price discrimination device. However, the discriminatory power is limited by the problem of free-riding which aggravates for an increasing number of potential buyers. I apply the model to research and development activities in the health industry discussing the availability of new drugs and vaccines in poor countries.
    JEL: D42 H41 L12
    Date: 2015
  10. By: Bremus, Franziska Maria; Neugebauer, Katja
    Abstract: In this paper, we investigate how the withdrawal of banks from their cross-border business has impacted on firms' borrowing costs since the recent crisis. We combine aggregate information on total and cross-border credit with firm-level data from the Survey on the Access to Finance of SMEs in the euro area. We find that the decline in cross-border lending has led to a deterioration in the borrowing conditions of SMEs. First, in countries with more pronounced reductions in cross-border credit inflows to firms and banks, the likelihood of a rise in firm's external financing costs has significantly increased. Second, both actual and perceived financing constraints of SMEs have become more likely. This result is mainly driven by the interbank channel, which has played a crucial role in transmitting shocks to the real sector across borders.
    JEL: F34 G15 G21
    Date: 2015
  11. By: Schmidt-Dengler, Philipp; Hünermund, Paul; Takahashi, Yuya
    Abstract: In many industries, the number of firms evolves non-monotonically over time. A phase of rapid entry is followed by an industry shakeout: a large number of firms exit within a short period. We present a simple timing game of entry and exit with an exogenous technological process governing firm effi- ciency. We calibrate our model to data from the post World War II penicillin industry. The equilibrium dynamics of the calibrated model closely match the patterns observed in many industries. In particular, our model gener- ates richer and more realistic dynamics than competitive models previously analyzed. The entry phase is characterized by preemption motives while the shakeout phase mimics a war of attrition. We show that dynamic strategic incentives accelerate early entry and trigger the shakeout by comparing a Markov Perfect Equilibrium to an Open-loop Equilibrium.
    JEL: L11 O10 L13
    Date: 2015
  12. By: Wulff, Alexander; Heinemann, Maik
    Abstract: This paper examines the effects of financial market imperfections in the context of financial integration. We employ a general equilibrium model with heterogeneous entrepreneurs and address the question of cross-border capital flows from poor to rich as well as focus on aggregate capital accumulation, output and welfare. The motivation is based on the mixed results from the existing literature. We add to this debate by discussing the effects from a general perspective in an environment where entrepreneurs face capital risk, earn risky profits and receive riskless wage income. Moreover, borrowing constraints hinder consumption smoothing as well as restrict the access to external funds for scaling up individual production. In order to separate the distinct effects, we consider several scenarios. In the first scenario without binding borrowing constraints and no persistent effects of shocks, we overcome the restriction that no analytical solution is available by deriving two rules of thumb, predicting the outcome of the model with high accuracy. These rules explain under which condition the less financially developed country features lower levels of capital and output in the autarchic steady state, implying capital flows from poor to rich, as well as under which condition an increase in the interest rate implied by financial integration unambiguously leads to larger levels of capital and output in the integrated steady state. For plausible parametrizations, we find that both conditions are likely to hold. In the next steps, we add tight borrowing constraints and increase the persistence of shocks. Both changes strongly affect the results derived in the first scenario.
    JEL: F41 G11 D52
    Date: 2015

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